790 EXCHANGE will buy only 1 ounce of gold, the par of exchange between the two countries will follow the course of that depreciation. The course of the exchanges of India has been much affected of late years by the depreciation of silver, and so also those of all silver-paying countries. The drawer of a bill sterling on London in Calcutta or Bombay is literally selling gold for silver, and, whatever the more ordinary par may have been, is bound to take into account the market value of silver. In 187G, owing to the large quantity of demonetized German silver thrown upon the market, less directly to a pre-existing cause, namtly, the large extent to which silver had been cast out even of the fractional currency of countries largely committed to incon vertible paper, and also to exaggerated reports of abundant increase of production in the American mines, silver fell to 47d. an ounce about the lowest point reached in its rela tion to gold, and a great reduction from what had long been its par value of 5s. 2d. an ounce. The consequence was that the Indian rate of exchange declined to Is. G^d. per rupee in six months sight bills on London, or, in other words, that the rupee, having an , iccustomed par value of near 2s., was worth only Is. G^d. sterling, minus say seven mouths interest accruing between the date and the maturity of the bill. It is difficult, or rather impossible, as foreign bills are negotiated, to distinguish the respective force of the various causes operating on the rate of exchange. In the case of India nearly all the constituents of exchange are adverse to the value of the rupee, save that of rate of interest, which is higher in Calcutta or Bombay tlian in London. The Indian drawer of a six months bill on London would lose more by holding the bill till its maturity than the buyer of the bill who remits it to London , for acceptance and discount ; and some middle term must be struck between them, according as the rates of interest in India and England vary. But, on the other hand, India is a country where the imports always exceed the exports, where foreign capital in many forms has been largely invested and has to render its annual tribute, and where the financial relations of the Government of India and the Government of England are such that the latter has to draw- periodically a considerable amount of bills on the Indian treasuries; so that, whatever the par of gold and silver might be, the supply of bills on London would always be less than the demand, or, in other words, the Indian creditors have some advantage over the Indian debtors of London in the rate of exchange. Were gold the money of India, the range of the premium thus established on the bill .in London would be limited by the cost of remitting gold; but silver being the money of India, the action of the premium itself, or rather of the relative indebtedness of which it is the result, is to extend the range of thespecielimit by lessening the demand for silver abroad. The rupee being less valuable than it formerly was, does less work in the Indian circulation and is all the more needed at home ; to export it in payment of the adverse balance of trade would be to send it where it is less valuable still. It may thus be concluded that the depreciation of silver lias been much the most potent and constant element in the adverse current of Indian exchange. The price of silver having since 1S7G risen to 53id., the rate of six months bills in London has risen to Is. 8-fd. The rate of Indian exchange rises in the export seasons when the supply of foreign bills is increased ; and it rises with the price of silver at all seasons. In the silver exchange between Hamburg and London the same rule prevailed. In Hamburg silver was money, but in England and other countries which have a gold standard it is only merchandise, and a rise or fall in the price of silver affected the value of a bill on Hamburg or a bill drawn on Hamburg in English sovereigns. Where a double standard exists, as in France, bills between that country and another are drawn in the standard which is common to both. Thus in the direct exchange between Paris and London, the bills are usually or almost wholly gold bills. 2. Were there a common international money, the supply and demand of bills would be the chief determining and cause of a rise or fall in the rate of exchange. Hence, in distinction from the nominal par, the relation of supply and demand of bills has been called " real exchange." Mr Goschen speaks of it as " the primary element in the value of bills/ which, from so practical an authority, may be regarded as indicating that, notwithstanding all the varieties of money, this continues to hold the chief place in the negotiation of bills of exchange, or that, the nominal par being once determined, or a common principle formed for its rectification when the money of a country has de preciated, it ceases to require the calculation which must always be given to the supply and demand of bills in the market. As the sum of the bills offered, and the sum ready to be bought, never express the whole of the cla : ms upon, or the whole of the debts due to a country, but only such claims as have been drawn for, and debts the time of payment of which has come or is nearly approach ing, there is always more or less change of the relation of supply and demand, as well as opportunity of judgment as to the probable course of the market, and means of apply ing correctives if the balance be swaying too much on the one side or the other. If the price of foreign bills be depressed for want of buyers, drawers may hold back a little ; on the other hand, if the demand has raised the price of bills, all who have sums to draw for will be induced to take advantage of the market, and so increase the supply. The buyers are moved in the same way, quickening or delaying their purchase within the limits of their period of remittance, according to their judgment of the probable course of the exchange. But the buyer cannot delay beyond the day when his remittance is due in the foreign country, nor the drawer beyond the ultimate dvte of drawing, or his own need of realizing the value of his bill; so that, amidst this oscillation, it is always the peremptory business to be done that determines the effect of supply and demand on the rate of exchange. The debtors of a foreign country, finding the supply of bills on that country less than the demand, will be ready to give an addition of price for them, in proportion to the scarcity, within the cost or up to the cost of remitting specie ; and the creditors or drawers on a foreign country will submit in the other extremity to discount on their bills within the cost of sending them to their correspondent or banker s correspondent abroad, with orders to take payment and remit the proceeds in specie. When the course of exchange, as thus pursued from week to week, reveals that the claims immediate and maturing upon any country are greater than the debts due to it, and cannot be discharged through the mechanism of direct and indirect bills of exchange, its balance of debt can only be paid by remittances of bullion or an increased export of goods and produce, or other exportable value. It is unnecessary to dwell further on the law of supply and demand of bills, which differs little from that of other com modities, beyond remarking that an inadequate idea would be formed of the efficacy of bills of exchange in Uqnidating international debts without taking into account an immense banking organization, aided by bill-brokers and dealers in foreign exchange, who have all the main currents of indebtedness under their eyes, and know with the precision of practice how the debts of one centre can be met by its claims upon others, and a stupendous mass of conflicting operations, ordinary and extraordinary, be most economi
cally effected. Fifty or a hundred millions sterling, as in the